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Beware the Aggressive Regulator: FCA Prosecutions in the Spotlight

Thursday, 22 August 2013

After any catastrophic event it is human nature to find someone to blame and the financial crisis has been no different. The wave of public opprobrium directed at the financial service industry in the wake of the financial crisis has meant politicians and authorities have had to act.

Legislators have been in overdrive, rhetoric has been ratcheted up and money has been poured into reducing the high risk and sometimes criminal behaviour felt by many to be responsible.

Prosecution of Financial Crime

The difficulty of prosecuting financial crime sits uneasily with the public sentiment that the guilty need to be punished but there is a feeling authorities have become increasingly aggressive in their attempts to gain scalps. This aggressive approach has been highlighted by the recent fining of David Davis, senior partner and compliance officer of Paul E Schweder Miller & Co.

Davis was fined £70,258, and Vandana Parikh, a broker at the same firm was fined £45,673 by the Financial Conduct Authority (FCA) for ‘failing to act with due skill, care and diligence’ in the period leading up to the illegal manipulation of securities by investor Rameshkumar Goenka, in October 2010.

Regulating Conduct in the Financial Services Industry

The FCA is now in charge of regulating ‘conduct’ - the behaviour of firms and individuals operating within the financial services industry. Along with the Prudential Regulatory Authority and the Financial Policy Committee (FPC), it replaced the Financial Services Authority on 1 April 2013.

The FCA has the statutory remit to prosecute financial crime but is currently limited to insider dealing, misleading the market and ‘perimeter offences’.

Has the Regulator’s Line Hardened?

This case appears to show that a harder line has been taken by regulators since the onset of the financial crisis.

Parikh was fined for ‘explaining the process of manipulation to Goenka without recognising the risk that this posed and without proper challenge or enquiry as to his intentions’. Davis, who was not aware of Goenka’s desire to manipulate the price nor that he held a linked structured product, was fined for being’ aware of sufficient information to constitute clear warning signals and failing to take preventative steps before authorising the trades’. 

The FCA concluded that by not challenging the instructions and by not refusing to accept the orders to trade, Davis failed to act with due skill, care and diligence. In 2011 Goenka was fined $9,621,240 by the FSA for market abuse – the largest fine imposed on an individual. 

Davis and Parikh were in part fined for not acting. The FCA stated that this makes it clear ‘that every individual involved in a chain that leads to trading must proactively challenge suspicious behaviour and ensure it is reported’ and that ‘All approved persons have a duty to help the FCA in its fight against market abuse’. 


This case undoubtedly shows that the hardened stance adopted by the FSA following the financial crisis is set to continue under the FCA. Proactive duties mean regulated persons are at a significant risk of being prosecuted by the FCA where mistakes are made.

The FCA has made its intention to rigorously enforce financial regulations clear. The need for finance professionals to understand the law and take legal advice regarding their responsibilities is greater than ever before. For more information about this case or for assistance in dealing with regulators, contact Peter Gourri today by email or telephone 0207 611 4848.

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